Greece’s Influx Of Chinese Capital – OpEd

China’s economic boom, which was prompted by rapid domestic industrial production and export growth in the late 1990s, is still ongoing. In fact, China’s GDP has grown almost 13 times over the past two decades.

Economic growth brought about a growth in incomes and an expanding middle class. According to the World Bank, between 2000 and 2016, the average annual income per capita in China increased eight times, from $790 to $6,100 today.

As seen in a joint survey by Bain&Co and China Merchants Bank, the number of Chinese with over $1.5 million in investable assets, a group also known as high-net-worth individuals (HNWIs), increased from about 180,000 in 2006 to nearly 1.6 million in 2016, representing an eightfold expansion within a decade. At the same time, the ranks of the richest of the rich, or ultra high-net-worth individuals (UHNWIs) — those with over $15 million in investable assets — have grown at an even faster rate. There were about 116,000 of them in 2016, compared to 7,000 in 2006. The affluent Chinese manage a total of more than $24 trillion in capital.

Capital exodus

According to Bain & Company, in 2011, only a small share of affluent citizens (19%) invested in foreign assets. By 2017 this figure had grown to 56%. The volume of direct Chinese investment in foreign assets has grown 47 times over the past decade from $4.6 billion in 2006 to $217.2 billion in 2016.

According to the American Enterprise Institute and Heritage Foundation, the most popular country among Chinese investors is the United States (US): between 2005 and 2016 it received about $149.7 billion from Chinese nationals. Generally, the presence of Chinese capital globally is and not associated with any continent in particular. Australia is second in Chinese FDI, followed by Canada and Brazil.

The main economic sectors the Chinese invest in are energy and power, and transport. In advanced economies, Chinese investors actively purchase companies and properties, while in developing ones, they participate in construction and infrastructure projects in energy and power, logistics and transport.

Chinese nationals are among the most active in most residence-for-investment programmes around the world. According to CBS News, over 100,000 Chinese nationals have spent about $24 billion to obtain residence permits in the past decade. They prefer to migrate to developed countries, the most popular of which is the US. About 40,000 Chinese nationals have participated in the US residence-for-investment programme, putting over $7.7 billion into the country’s economy.

Restrictions

The exodus of the capital from the country and the active emigration of the affluent population have made the Chinese government seriously consider tightening regulatory controls over their nationals’ international economic activities. Since late 2016, the Chinese government has taken measures to enhance the transparency of transactions involving foreign counterparties, which has significantly limited the opportunities Chinese nationals have to invest abroad. For instance, now Chinese nationals cannot more than $50,000 abroad per annum. Investments in real estate, including hotels, cinemas and sports clubs have fallen under serious restrictions.

However, analysts are divided about the efficiency of the measures taken. For instance, in an interview with Citilab, Lawrence Yun, chief economist and head of research at the National Association of Realtors, claimed that the number of enquiries for US properties by Chinese nationals has been growing since early 2017. He also said that the enterprising Chinese are quick to find ways to avoid the restrictions, such as syphoning off funds with the help of numerous relatives and neighbours and paying them personally within the country.

Conversely, macro statistics are more negative. Forbes reported, citing the Chinese Ministry of Commerce, that from January 2017 to October 2017, Chinese FDI shrank by more than 40% year-on-year. As reported by Chinamoneynetwork, citing a report by Cushman & Wakefield, in Q3 2017, the volume of Chinese investments in overseas real estate amounted to just $2.5 billion, the lowest since 2013.

China and Greece

Source: World Bank

The Chinese business community is looking for new areas for investment and has been actively cooperating with Greece in recent years. According to the Bank of Greece, the total amount invested by Chinese and Hong-Kongers in Greece between 2005 and 2016 totaled €585.2 million, €346.3 million of which was invested in 2016. However, according to the Institute of International Economic Relations, the real transaction volume is much larger. According to the Chinese Ministry of Commerce, for example, by late June 2017, China had invested over $1.3 billion in Greece. According to the Embassy of Greece in Beijing, this amount is $1.6 billion, and, according to the American Enterprise Institute, China invested about $6.7 billion in Greece between 2005 and 2017.

The growth in Chinese FDI is primarily associated with a number of major privatisation projects involving Chinese companies:

In 2016, COSCO, one of the largest port operators in the world, acquired 51% shares of the Piraeus Port Authority for €280.5 million. In five years, the Chinese company will take possession of another 16% shares for €88 million. As part of the deal, COSCO must invest €300 million into the modernisation of shiprepairing assets and logistics during this time.

In June 2017, State Grid Corp. purchased a 24% stake in Greek state-owned power grid operator ADMIE for €320 million.

At the same time, the Chinese business community is actively cooperating with private Greek companies. In 2014, Chinese development corporation Sinohydro and Greek company Terna Energy signed a memorandum of understanding (MOU) on future renewable energy projects, which exceed $1.2 billion. The Industrial and Commercial Bank of China (ICBC) also participated in the MOU.

In November 2017, Shenhua Group acquired 75% of the shares of four wind parks owned by Copelouzos Group. The transaction amount was not disclosed, but the companies estimate the value of the future projects the field of green energy at €3 billion.

One of the most discussed and highest-profile projects in today’s Greece is Hellinikon, an ambitious plan to convert the former Athens airport into an enormous park. The international consortium comprising Chinese conglomerate Fosun Group, Arabian developer Eagle Hills and Greek company Latsis Group will invest €8 billion in the project.

In addition, Chinese nationals make up the largest share of participants in the Greek Golden Visa programme launched in 2014. A Greek residence permit can be obtained with the purchase of property in Greece from €250,000. From the launch of the programme to October 2017, over 2,000 Chinese investors and their family members have obtained residence permits.

The active expansion of China into Greek infrastructure is determined by two factors. First, the global financial and the Greek debt crises have led to a general reduction in the prices of Greek assets, making them risky but attractive investment vehicles. The second factor is Greece’s strategic location – it is an important trading partner and transportation gateway for the New Silk Road between Europe and the Middle East. Privatisation programmes have made major logistics infrastructure accessible to Chinese investors, which, in turn, would enable China to strengthen its control over trade flows.

*Artyom Shitkov is a real estate analyst at Tranio.com, which is an international real estate platform with a network of 700 partners worldwide and a catalogue of more than 110,000 listings in 65 countries.

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